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It is absolutely mind-blowing that an entire industry that sells the solution to the biggest problem people will face in retirement — a problem the federal government reminds us of on a daily basis — would rather hang out in WalMart than actually help their own clients protect themselves properly for their financial future, while selling the very same products they own. Get it? The life insurance industry would rather go broke than sell people the solution to this health funding mess.

The Wall Street Journal is reporting that life insurance companies are now struggling with sales so severely that firms like MetLife are setting up shop in WalMarts across the country. The campaign in one such WalMart, in Roswell, Ga., goes so far as to beg the middle-class WalMart patrons to "get life insurance today for only $5." This is the exact reason why life insurance companies are struggling with sales and will continue to do so: Their thought leaders come up with ridiculous marketing campaigns like this one.

The very basic questions that should be asked before something so inane is even put into motion are: Why would a middle-class WalMart patron need $5 life insurance? What is the benefit of life insurance for this middle-class WalMart customer? Where is the sizzle that these customers are accustomed to seeing on TV from firms pitching investing in the stock market?

Apparently, as reported by the Wall Street Journal, MetLife is getting the exact results it deserves. After 90 minutes of being at the MetLife kiosk, “just two shoppers stopped to check out MetLife's insurance offer. No one took a $5 card needed to activate the new coverage with a follow-up phone call." Granted, 90 minutes isn't a lifetime, but it is a good sample size of what to expect. Even a kid selling lemonade would get the hint to leave after 60 minutes of nothing.

What is even more pathetic is the fact that other life insurance companies are watching this spectacle unfold and, instead of praying for its failure, as competitors are supposed to, they are actually rooting for the success of MetLife’s program. The article states that “even rival insurers are hoping for the best."

“As an industry … we need to change these [sales] trends," said Mark Hug, an executive vice president in Prudential Financial's individual life insurance unit. It's really just sad that this is what life insurance has fallen to. It is very reminiscent of 10 years ago when Countrywide set up storefront offices in an attempt to get the middle class customer, who, at that time, was out shopping for toothpaste and a toilet brush, to come into the store and borrow money. The logic was idiotic really. The geniuses who conjured up this marketing fiasco apparently said to themselves that shoppers would see this storefront and say, “You know what, Honey? I completely forgot. We have to get a mortgage today! I can’t believe I forgot that again! It really is a good thing that a storefront is here in this shopping plaza, because there is no reason why we should go see a professional at their office in order to borrow a couple hundred thousand dollars.”
The results Countrywide received will be exactly the same for the Met, because the average “middle-class” WalMart shopper is not going to look at their spouse at any time and utter, “You know what? I was thinking we need to protect ourselves in the event of our untimely death. You know what we should do? We should go down to WalMart and buy $5 life insurance." This is never going to happen — ever! The only thing worse than this is the fact that the life insurance industry is sitting on a marketing niche that is bigger than anything that has ever happened in the history of American financial planning, and it all comes directly from the federal government. But instead of focusing on that, the life insurance industry as a whole would rather just go to WalMart.

Believe or not, every single American who plans on retiring — and who wants to receive their Social Security benefits, lower their tax obligations and control all of their health costs — must own life insurance. Yes, if you care about your retirement, your income, your taxes, your health and the obligations that you may hand over to your children, then you need to take a hard look at how the federal government changed the rules of retirement and why you need to own life insurance. But don’t worry, even the life insurance professionals at MetLife and Mark Hug of Prudential couldn't care less. (And yes, I did communicate with Mr. Hug, and there was no interest in learning more.)

Here are the rules, set up by the federal government — rules that have been on the books for years, but around which no one has even attempted to plan.

1. You have a mandatory expense in retirement called your health insurance, and it’s been this way since 1993. In order for you to collect your Social Security, you must enroll into Medicare when eligible or you forfeit all of your current, future and past benefits (don’t worry about paying it back though, the IRS will just take it from your children later with interest).

2. This expense is based on your income, meaning the more income you have in retirement, the higher your health costs will be. Amazingly, this rule was enacted in 2003 and implemented seven years ago, as Medicare created the income-related monthly adjustment amounts. And, again, no one has yet to even to attempt to plan for this at MetLife or even Prudential, who, according to a Director of Advanced Planning there, knows all about this.

3. This expense is automatically deducted from your Social Security benefit. Thanks to regulations at Social Security and the Centers of Medicare/Medicaid Services, the bulk of your health costs in retirement are deducted directly from any Social Security benefit you may receive; this includes those pesky surcharges due to your income being so high. Keep in mind that according to the Social Security Board of Trustees, the cost of living adjustments (COLAs) for benefits are expected to be no higher than 2.8 percent for the foreseeable future. Your problem with this: Guess what Medicare's inflation rate has been for the last 47 years? Seven percent, according to the Medicare Board of Trustees Report, which means that even with the Hold Harmless Act, you most likely will see your Social Security COLAs consumed by your mandatory health costs.
4. The income that is used to determine how much you pay for your health coverage is practically everything but (drum roll please) life insurance! Who would have thought? Income as defined by Social Security is: “everything on lines 37 and 8b of the IRS form 1040 or your adjusted gross income plus any tax-exempt income.” This means those precious traditional tax-deferred accounts like 401(k)s and IRAs, as well as dividends — including those from municipalities as well as any wage and Social Security benefits — will be used against you when your health is on the line. These wonderful accounts will also help lower any Social Security benefit you thought you were going to receive, and they will also drive up your overall tax rate. I know, this was all probably left out of the fine print at that Social Security seminar you put on this year, huh?

But guess what isn’t used against you when your health is on the line? Surprisingly, all of the things that the financial industry bashes, doesn't sell, or convinces people to do the exact opposite of. Yes, the solutions to controlling a big part of health costs, which will also save a good portion of Social Security benefits while lowering one's tax obligation in retirement and still allow the ability to generate that much needed income, are Roth accounts, very specific annuities and life insurance.

It is absolutely mind-blowing that an entire industry that sells the solution to the biggest problem people will face in retirement — a problem the federal government reminds us of on a daily basis — would rather hang out in WalMart than actually help their own clients protect themselves properly for their financial future, while selling the very same products they own. The life insurance industry would rather go broke than sell people the solution to this health funding mess. If this was written into a movie, no would believe it. If it was a novel, it would be pure fiction; but as it stands today, I have no clue what to call it, other than beautiful as I sit here and cry.

The only saving grace in all of this is that at least those marketing on the securities side of the financial industry fence — firms like Merrill Lynch, Goldman Sachs, T Rowe Price and Morgan Stanley — have a solution to this issue through Roth accounts, and when they figure it out they will be more than ready to sell people the solution. Keep in mind that the Roth account will never be on par with life insurance and annuities, since these two products can provide things like guarantees on rates of return and a stable flow of income in retirement. They, right now, also have a trump card, which is the ability to also help cover for any costs associated with long-term care.

But, does anyone want to bet how quickly the securities side of the financial industry adapts and finds a solution to equal the life insurance industry, once they recognize the opportunity?

About the Author

Dan McGrath, author of "What you don't know about retirement will hurt you!” is one of the country's leading experts on how the high costs associated to healthcare will impact retirement, Social Security and the overall economy.
Mr. McGrath is the Co-Founder of both Jester Financial Technologi... More